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Gold falls sharply one day after Yellen put, amid heavy profit taking

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Investing.com -- Gold fell sharply on Wednesday amid heavy profit taking, erasing some of it gains from the previous session when investors piled into the precious metal following extremely dovish comments from Janet Yellen on the Federal Reserve's cautious stance toward future interest rate hikes.

On the Comex division of the New York Mercantile Exchange, gold for June delivery traded in a broad range between $1,228.10 and $1,245.90 an ounce, before settling at $1,229.60, down 7.90 or 0.64% on the session. It came one day after gold bounced off monthly lows, surging more than $15 in Tuesday's session. Despite falling approximately $50 an ounce since hitting 13-month highs earlier in March, gold is still up roughly 15% since the start of the year and is on pace for its strongest opening quarter since 2007.

Gold likely gained support at $1,063.20, the low from January 4 and was met with resistance at $1,280.70, the high from Mar. 11.

Investors continued to digest remarks from Yellen on Tuesday at a closely-watched speech before The Economic Club of New York, when the Fed chair emphasized that any rate hikes from the Fed will likely take place in a gradual manner unless considerable global and financial risks recede in the near-term future. Yellen's comments contradict the hawkish positions of four of her colleagues on the Federal Open Market Committee (FOMC), which suggested last week that the U.S. Central Bank should approve up to three rate hikes this year. Earlier this month, the FOMC held the target range on its benchmark Federal Funds Rate between 0.25 and 0.50%, marking the second straight meeting it left rates unchanged following December's historic rate hike.

While Yellen acknowledged that the U.S. economy has demonstrated remarkable resiliency as the labor market continues to flourish, she expressed significant concerns regarding soft manufacturing and export levels, as well as declining capital expenditures. Notably, Yellen cited research from Federal Reserve of Chicago president Charles Evans on the policy direction that should be undertaken by the Fed in periods of increased uncertainty when short-term rates remain low. In a 2015 paper entitled "Risk Management for Monetary Policy Near the Zero Lower Bound," Evans and others argued that increased risks on nominal interest rates call for "greater gradualism," in comparison with environments when rates are "appreciably above zero."

On Wednesday, Evans reiterated that he expects the Fed to raise interest rates as much as two times this year, with an April rate hike likely off the table. Much like Yellen, Evans is cautious of lifting rates too quickly as inflation in the euro zone and elsewhere remains stubbornly low.

"I think moving in June would be on the basis of further improvements in the labor market," Evans told CNBC. "I just don't think we want to get ahead of ourselves."

The CME Group's (NASDAQ:CME) Fed Watch tool lowered the probability of a September rate hike to 35.6% on Wednesday, down from 57.0% last month. In addition, the CME Group said there is a 16.8% chance the Fed will raise rates twice more before the end of December, considerably below a 39.7% probability one month ago.

Any rate hikes this year are viewed as bearish for gold, which struggles to compete with high-yield bearing assets in periods of rising rates.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell more than 0.35% to an intraday low of 94.57, its lowest level since mid-October. The index is on pace for its worst month since 2010. Further steps from the Fed to normalize monetary policy this year are also viewed as bullish for the dollar, as investors pile into the greenback in order to capitalize on higher yields.

Silver for May delivery fell 0.008 or 0.05% to $15.225 an ounce.

Copper for May delivery lost 0.022 or 0.99% to $2.192 a pound.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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